There is understandable concern regarding how far back the IRS can look when auditing tax returns. While generally the IRS can look back three years after a filing during an audit, there are many exceptions to this rule.
It is important to remember that cancellation of a debt does not mean that your financial worries will come to an end. Any Michigan taxpayer who has part or all of their debt cancelled may nevertheless need to report this amount as income. When lenders cancel $600 or more of your debt, you should then receive a Form 1099-C providing the amount of the debt cancellation.
While reporting income on our tax forms is relatively straightforward under certain situations, it's often complex in other instances. We use W-2 forms for reporting income from our employer, and a variety of 1099 forms for reporting other forms of income such as royalties, interest and dividends. This is easy to understand. However, we also sometimes are obligated to report income that does not involve cash such as the constructive receipt of income.
The IRS audits nearly 1.5 million tax returns every year. But how do they decide which returns should be audited (or "examined" in IRS terminology)?
The IRS has numerous resources and law enforcement tools available to collect taxes. Every return faces scrutiny, and mistakes on the return can lead to an IRS tax audit. It is important for Michigan taxpayers to remember that audits frequently result in fines, penalties and possibly imprisonment.
Taxpayers often are subject to tax audits and other agency actions taken by the IRS. The notice of an audit can cause understandable concern. Mistakes and findings of wrongdoing can lead to tax penalties and criminal charges. However, even the IRS recognizes that taxpayers have rights under the law.
Florida has more IRS offices than all but four other states, and many of these offices are in South Florida. That alone makes it more likely that Florida residents and Florida businesses will be selected for an in-person IRS audit (called field audits) or face other issues with the IRS.
While there are advantages in being self-employed, taxes can be more complicated for self-employed individuals than those who work for someone else. Additional tax forms will require filing to meet IRS guidelines. And due to such complications, there is a greater increase of mistakes made during filing that could lead to a higher chance of audits and criminal penalties.
In today's tax world with its complicated rules and reporting requirements, it never hurts to plan ahead. The preparation process can take time, however. More importantly, such preparation requires great care as mistakes can result in harsh tax penalties and asset seizures.
Our prior post on our tax law blog began answering the question about whether some people might face higher odds of going through an IRS tax audit. So far, we listed a couple of QuickBook's causes for audits: high earnings and possibly rounded numbers.